1. Field of the Invention
The present invention relates to financial transactions and, in particular, to a system and method of risk assessment, whereby provisional authorization may be granted to a merchant for the selective delay of a financial transaction.
2. Description of the Related Art
A typical financial transaction involves a form of payment in exchange for vendibles, such as services and/or merchandise, at a point of sale. In most instances, a customer provides the form of payment, such as a promissory check draft, to a merchant in exchange for the vendibles. The check draft is often regarded as a promissory payment that instructs the customer's bank to pay the merchant. As is generally known, the funds promised to the merchant by the check draft are sometimes not paid due to reasons, such as insufficient funds in the customer's checking account or fraud. Unfortunately, the merchant may be susceptible to risk whenever a check draft is received as payment for services and/or merchandise.
Sometimes, the merchant may choose to manage risk by maintaining one or more local databases that may include, for example, a list of customers or check writers that have written bad checks in the past. Such databases may range from a simple list on paper for a small store owner to a computer network for a chain store. Unfortunately, managing such databases requires use of merchant resources that could otherwise be used more beneficially.
Alternatively, the merchant may choose to manage risk by subscribing to an agency that assess the risk associated with promissory check related financial transactions. Examples of a risk assessment agency include TeleCheck. For a given transaction, a subscribed merchant sends a transaction approval request to the agency with information, such as promissory check draft amount, check identifying information, and information about the check writer. The agency assesses the risk and generates a risk score based on the information received. The agency then either approves or declines the transaction based on the generated risk score. The level of subscription to such an agency may vary, from an approval service to the agency assuming the risk of the transaction by either guaranteeing the check or purchasing the check from the merchant. Thus, it is in the interest of the agency to accurately assess the risks associated with financial transactions.
A conventional check approving process may comprise a cutoff risk score such that a transaction whose risk score is higher than the cutoff risk score is approved. Conversely, a transaction whose risk score is lower than the cutoff risk score is declined. In addition, a borderline risk score is positioned somewhere between the low risk score and the high risk score, which is somewhat near the cutoff risk score. Consequently, since the above-mentioned check approval process is generally configured to statistically favor the merchant or the check approving agency in terms of probable risk, borderline risk assessments are often declined in many check transactions that correspond to borderline risk scores.
For example, if the generated risk score is substantially equivalent to the cutoff risk score, which corresponds to a borderline or marginal risk score, then the merchant and/or the check approving agency typically declines the financial transaction and the customer is required to present another form of payment or abandon the requested financial transaction altogether. In many cases, marginal risk situations result in lost revenue for the merchant due to the occurrence of borderline or marginal risk assessment declines.
In certain high risk environments, it may be necessary to issue a high number of risk based declines to protect the merchant and the check approving agency from high returned check rates. Unfortunately, issuing the high number of risk declines results in customers becoming irate, merchants losing sales, and interferes with the check approving agency's ability to assess marginal risk at higher turndown levels. Therefore, some conventional check approval agencies are substantially deficient in managing marginal risk and may require significant improvement. Furthermore, the authorizational processing, temporal risk, and lack of flexibility to manage procedural variations and/or borderline risk scores by conventional check approval agencies may also require significant improvement.